The Treasury has today confirmed that as part of the Budget overhaul of drawdown rules the government has waived the requirement for savers to “secure an income” within six months of taking their 25 per centtax-free lump sum.
The change will mean retiring savers can take their lump sum now and wait until next year’s more extensive changes to retirement income rules before deciding what to do with the rest of their pot.
The government said it intends to include legislation in Finance Bill 2014 to ensure people do not lose their right to a tax-free lump sum if they would “rather use the new flexibility this year or next, instead of buying an annuity”.
Outling the numbers of those affected by the first phase of changes today, the Treasury said 400,000 people could benefit from today’s pension changes, with 320,000 of those DC savers due to retire this year and the remainder those in capped drawdown that can take a higher income.
The government’s wider reforms announced in last week’s Budget will benefit 13m people in Britain who have DC schemes, “and the numbers continue to grow”.
Changes today relax drawdown limits so that unlimited ‘flexible’ drawdown is available to those who can secure an annual income to £12,000 and the income limit on ‘capped’ drawdown has been upped to 150 per cent of GAD rates.
Savers can also take an increased £30,000 of pension savings as a lump sum from today, with a new higher limit of £10,000 in a single scheme able to be withdrawn as cash.
Chancellor George Osborne said: “The pensions reforms in my Budget have struck a chord with many. The reaction to the Budget reminds us all of a simple truth: when people are given more choice over their own lives they warmly welcome it. These reforms are part of our long term plan to create a more secure economic future for Britain.
“The government has already introduced greater flexibility and choice for people in retirement, including by removing the requirement to convert a pension pot into an annuity by age 75 and introducing flexible drawdown.
“However, most people still have little option but to take out an annuity, even though annuity rates have fallen by a half over the last 15 years.
“That’s because if you wished to withdraw your entire pension fund, it would be subject to a 55 per cent tax charge under current rules.”